Freight means a lot to The Home Depot. So does sustainability. Transportation accounts for 65 to 70 percent of its supply chain cost. And like other big shippers, the home improvement chain is aware that transport generates about one-quarter of all greenhouse gas emissions in the U.S.
Add it all up, and it means a big role for Michelle Livingstone, Home Depot's vice president of domestic and international transportation. Her day is spent overseeing her company's vast shipping network, while ensuring the carriers it hires meet strict sustainability guidelines.
In an interview with Mark B. Solomon, DC Velocity's executive editor-news, Livingstone discussed, among other things, Home Depot's commitment to the Environmental Protection Agency's (EPA) "SmartWay" carbon-reduction program (of which it is a charter member), the growing role of intermodal in the company's transport strategy, and realistic targets for cutting the company's carbon emissions.
Q: Can you describe the steps Home Depot has taken to cut its carbon footprint through more effective transport management? And how have you been able to measure your improvements?
A: Our carrier contracts require SmartWay participation, and we work with all of our carriers to ensure they meet the SmartWay qualifications. We have taken it a step further by making a SmartWay score a key determinant in the carrier selection process. We are one of the founding members of the program, so we want to make sure our carriers know how important it is to us.
As for metrics, in 2015 we shipped 4,000 fewer trucks by optimizing our trailer cube. This reduced our emissions by 4,132 metric tons.
Q: Were the environmental improvements generated from building more truckloads out of what were previously parcel or LTL shipments, a shift to intermodal, or changing your network infrastructure?
A: All of the above. The advent of our rapid deployment center (RDC) network—and we now have 18 of these facilities—has allowed us to change the way we order product. This has enabled us to build more full truckloads that get shipped to an RDC. We also operate an inbound freight consolidation operation within our own network. That allows us to combine less-than-truckload (LTL) shipments for shipping to RDCs. We have effectively created our own LTL terminal infrastructure.
Q: Are you using more intermodal today than you did a year ago, two years ago, five years ago?
A: We have increased our use of intermodal over the last couple of years. We are hovering in the 10 percent range, and we would want to expand that if the market is favorable. Because the cost of one-way truckload service has declined so dramatically this year, truck transport has become more price-competitive relative to intermodal. We never exactly set a particular [modal-use] target because we have to ensure that we are getting our product to the shelf at the lowest possible cost, but we are very committed to intermodal. It's both an economic and a sustainability play. Service consistency and reliability are the keys. We need the railroads to continue to focus on service improvements so we can continue to use more intermodal.
Q: What types of further improvements do you see Home Depot making on the sustainability front?
A: We will always be focused on reducing our use of parcel and LTL to the extent we can and trying to build as many truckloads as we can. In addition, we are interested in testing alternative fuels like [liquefied natural gas] and [compressed natural gas]. We haven't quite gotten to that yet, but we will continue to stay very focused on it. The great thing about sustainability and transportation is that everything we do to reduce costs results in environmental improvements.
Q: Transportation accounted for about a quarter of all sources of U.S. greenhouse gas emissions in 2014, which was the last year for which EPA has full-year data. Is there a percentage that transportation stakeholders should realistically shoot for in terms of reducing emissions caused by the movement of goods?
A: We have found that reductions of 2 to 5 percent a year, while increasing our revenue, is meaningful and impactful.
Q: Are shippers on the same page with Home Depot as far as the priority they place on sustainability?
A: There are certainly a lot of shippers that are on the same page. The reason why Home Depot is so committed, and why I think the other companies are too, is that it is the right thing to do. Also, our customers are expecting it. If there is no better reason to become very green, it is that customers are expecting the companies they do business with to be sustainable and to make good decisions on that.
Q: Are you surprised that oil prices, and by extension diesel fuel prices, have stayed so low for such a prolonged period?
A: The decline in oil prices has been a little bit of a surprise. I don't know that we would have expected prices to stay this low for this long. Hopefully, it will continue. From a budget perspective, it is an advantage.
Q: What is your outlook for this year on truck rates, capacity, driver availability, and the impact of current and proposed federal regulations?
A: Certainly, it was a favorable shipper market in 2016. Home Depot is somewhat protected from the ebbs and flows because of the way we do our contracts. We perform an annual bid process that in the case of the current contract year, began in August and will run into next August. Our high seasonal activity normally takes place in the first half of the calendar year, as opposed to the back half as is typical for most retailers. So we are able to take advantage of some things that other shippers and retailers are not able to. That being said, supply and demand issues are driven by the economy, so an improving economy will put pressure on capacity. At this point, we haven't experienced evidence of an extremely robust economy.
We recognize that new drivers are not entering the field at the same rate they did in previous decades, so we are very cognizant of the potential driver shortage and capacity tightness. That is where alternative modes like intermodal come into play. As for issues like mandatory installation of electronic logging devices (ELDs) in truck cabs, the carriers we do business with are well prepared for that, so we expect the implementation to have a minimal impact on us.
A version of this article appears in our January 2017 print edition under the title "Orange is the new green: interview with Michelle Livingstone."